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Top Global Pension Funds Reach Record High in 2010, Towers Watson

Posted on 06 Sep 2011

Total assets of the world’s largest 300 pension funds grew by 11% in 2010 (8% in 2009) to a record high of US$12.5 trillion and up by around US$1.2 trillion from last year’s figure, according to Pensions & Investments and Towers Watson research.

The P&I/Towers Watson global 300 ranking, conducted in conjunction with Pensions & Investments, a leading US investment newspaper, shows that despite last year’s growth in total assets, annualised growth of all funds during the past five years has fallen to just over 6%. By individual region, Europe has the highest five-year growth rate of 11% compared to Asia (9%) and North America (1%); while the Latin American and African regions combined have a growth rate for the same period of 15%, albeit from a low base. The research also shows that the world’s top 300 pension funds now represent over 47% of global pension funds assets1.

According to the research, Defined Benefit (DB) funds account for 70% of assets. DB assets grew by 8% in 2010, compared to 13% for DC funds and 21% for reserve funds.

Carl Hess, global head of Investment at Towers Watson, said: “The world’s largest pension funds have changed their asset mix during the past five years to be more defensive partly due to ongoing volatility and an unpredictable growth environment, with the top 20 funds, on average, now having equal amounts in equities and bonds (c. 40% each) and the rest in alternatives and cash. At the same time Asia-Pacific funds, in particular Japan, have maintained much higher allocations to bonds in keeping with prevailing investment beliefs there and which explains their now 50% share of top 20 fund assets.”

According to the research, the US remains the country with the largest share of pension fund assets accounting for 34%, although this has declined steadily over the last five years. Japan has the second-largest market share of 19% (14% in 2007), largely because of the Government Pension Investment Fund. That fund, which is still at the top of the ranking (a position it has held for the past eight years), has assets of around US$1.4 trillion and maintains a conservative asset allocation. The Netherlands has the third-largest market share with 6%, while the UK and Canada are tied for fourth largest with 5% each. The research shows that 54 new funds have entered the ranking during the past five years mainly from Australia (11), Denmark (5), Mexico (4), Germany (4) and Finland (4). During the same period, the US and UK combined have had a net loss of 45 funds from the ranking, yet together still account for just under half of all funds. In 2010, two Russian funds joined the ranking for the first time, including the National Wealth Fund with assets of US$88 billion.

Carl Hess said: “Top funds around the world are quickly prioritising governance and risk management arrangements in recognition of the risk of not doing so in increasingly volatile and unpredictable markets. Those that have done so will be best placed to adapt their strategies for some of the extreme conditions we could yet encounter, while competing globally for returns in this low growth environment.”

The research shows that assets held by Brazilian funds grew at the fastest rate during the five-year period to the end of 2010, 22% in US$ terms, followed by Australia with 19%. During the same period the top Taiwanese, Mexican, Danish and Swedish funds grew at 13%, 11%, 9% and 8% respectively, in US$ terms.

Sovereign funds2 continue to feature strongly in the ranking with the 26 of them accounting for 29% of assets and totalling US$3.7 trillion. When added to public sector funds (assets of US$4.9 trillion) the total is 138, which accounts for 68% of all assets. Private sector industry funds (60) and corporate funds (102) account for 13% and 19% respectively of assets in the research.

Carl Hess said: “Recent market gyrations are a reminder that the economic fundamentals are likely to create a challenging investment environment for a number of years to come. We believe that only those funds that are well diversified, more dynamic and risk aware will have been able to minimise the damage to their balance sheets. Furthermore only those with the best governance arrangements are likely to maximise their chances of achieving the future returns they need to improve and lock in better solvency positions.”

Towers Watson Investment

Towers Watson Investment is focused on creating financial value for the world’s leading institutional investors through its expertise in risk assessment, strategic asset allocation and investment manager selection. It is a division of Towers Watson’s Risk and Financial Services business, has over 650 associates worldwide and assets under advisory of over US$ 2.1 trillion.

1 Estimation based on the P&I / Towers Watson global 300 ranking and Towers Watson Global Pension Asset Study.2 As established by national authorities for the meeting of pension liabilities. We acknowledge that there are many other state-sponsored funds established – we have attempted to restrict this to funds specifically sponsored by national authoritie